The knife-edge contest in Makerfield on 18 June won’t just be one of the most important UK political events this century – FDs and CFOs could wake up on 19 June to discover volatility in the pound has significantly hurt their bottom line. Political risk is currency risk, so the time to consider managing your currency exposure may be before the Makerfield result, rather than after.
Makerfield is unusual because it’s more than a by-election. It could decide who will be Prime Minister and change the direction of government economic policy. Corporate treasury teams often treat political event risk as background noise rather than a threat to their balance sheets, but if there was an unhedged 3% drop in sterling over the next fortnight, it wouldn’t just make your overseas suppliers more expensive – it could erode your Q3 profit margin.
The good news is that, unlike most political upheavals, this is a known, dated event, so you have time to consider your options and potentially mitigate risk beforehand. The lessons from history are pretty clear: when political uncertainty peaks, currency markets move first and ask questions later.
- August/September 2019 – the no-deal Brexit peak: As political gridlock intensified under the threat of a disorderly exit from the EU, sterling plunged to multi-year lows of $1.20 against the US Dollar and €1.09 against the Euro, driven by constitutional uncertainty.
- September 2022 – the mini-budget disaster: The Truss administration’s unfunded fiscal statement triggered massive capital flight. GBP/USD collapsed to an all-time historic low of $1.03.
- July 2024 – election night: Predictability fosters stability. Despite a massive landslide change in government, sterling barely flinched. Why? Because a large Labour majority had been thoroughly priced into the market weeks in advance, eliminating policy ambiguity.
High political stakes in Makerfield
Makerfield matters because priced-in predictability is falling apart. The by-election was triggered when Makerfield MP Josh Simons resigned to allow Manchester Mayor Andy Burnham to return to Parliament and mount a Labour leadership bid. 97 Labour MPs publicly called for Keir Starmer’s resignation after the 2026 local election collapse, and Makerfield will be a de facto verdict on his leadership. The latest polling from Survation puts Burnham at 49% and Reform’s Robert Kenyon on 39%, suggesting Burnham’s lead is extending. But the situation is volatile, and a lot can happen between now and 18 June.
We see three scenarios to watch out for that could impact FX for UK businesses.
Scenario 1: Burnham wins comfortably
This is the outcome markets are most expecting. A clear Burnham victory would allow Labour to claim that its support remains resilient despite recent setbacks. Questions about Starmer’s long-term future would remain, but pressure for an immediate leadership contest would ease. The prospect of an orderly transition of leadership to an obvious successor would be seen as positive, disruption would be minimised and an FX shock would be less likely. With Burnham’s economic platform leaning towards more state intervention, traders may begin pricing out the current Treasury’s fiscal conservatism, potentially triggering a longer-term downward grind for the pound as markets anticipate higher future borrowing.
Potential GBP impact: broadly neutral to mildly positive, with lower volatility.
Scenario 2: Narrow Burnham win
If Burnham scrapes through by a thin margin, infighting within the Labour party would probably go live. Instead of an orderly transition, the UK could face a bitter, public fight for the soul of the ruling party. For sterling, this could mean a sharp spike in implied volatility (the cost of hedging options). Markets dislike uncertainty more than specific policies because investors can price in a policy change, but struggle to price a leadership contest with unclear outcomes. This may put downward pressure on sterling in the short term. It probably wouldn’t be anything like the systemic credibility concerns of the 2022 mini-budget, but markets may apply a modest risk discount while waiting for clarity.
Potential GBP impact: moderate sterling weakness and increased volatility.
Scenario 3: Shock Reform win
This would be the shock outcome. A Reform victory could cripple Labour’s electoral position and may trigger an acute leadership crisis and significant FX volatility. Markets would need to assess multiple possibilities simultaneously: whether Starmer could survive, whether Burnham’s leadership bid is finished, which other candidates could emerge, and what the eventual outcome might mean for economic policy. Currency markets price probabilities, not certainties, and a Reform win would create many more scenarios. Again, this would probably not be an upheaval like the Truss mini-budget, but it could generate sharp short-term moves in sterling. Markets would price a drawn-out contest and may apply a higher risk premium to UK assets until a clearer political path emerged.
Potential FX impact: meaningful sterling weakness and a significant increase in volatility.
Key takeaway
The Makerfield by-election has a known date and a finite set of outcomes, so review your FX exposure before 18 June, not after.
This publication is provided for general information purposes only and does not constitute financial, legal, tax or other professional advice from Lumon, nor is it intended as a substitute for obtaining advice from appropriately qualified professional advisers. Foreign exchange services provided by Lumon are offered on an execution‑only basis. Lumon makes no representations, warranties or guarantees, whether express or implied, as to the accuracy, completeness or timeliness of the content of this publication.
